Real Estate Appraisals: A Primer
A home purchase is the biggest transaction many may ever encounter. It doesn't matter if where you raise your family, a seasonal vacation home or an investment, the purchase of real property is a complex transaction that requires multiple people working in concert to pull it all off.
Most of the participants are quite familiar. The most known face in the exchange is the real estate agent. Then, the bank provides the money necessary to fund the deal. And the title company makes sure that all areas of the sale are completed and that a clear title transfers from the seller to the purchaser.
So, who's responsible for making sure the property is worth the purchase price? This is where the appraiser comes in. We provide an unbiased opinion of what a buyer could expect to pay — or a seller receive — for a parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from A. M. Appraisals will ensure, you as an interested party, are informed.
Appraisals start with the property inspection
To ascertain the true status of the property, it's our responsibility to first complete a thorough inspection. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are there and are in the condition a typical buyer would expect them to be. To ensure the stated size of the property has not been misrepresented and convey the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would affect the value of the property.
Once the site has been inspected, an appraiser uses two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, the appraiser uses information on local building costs, the cost of labor and other factors to derive how much it would cost to construct a property comparable to the one being appraised. This figure usually sets the maximum on what a property would sell for. It's also the least used predictor of value.
Paired Sales Analysis
Appraisers get to know the subdivisions in which they appraise. They thoroughly understand the value of specific features to the people of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the subject in question. Using knowledge of the value of certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they more accurately portray the features of subject property.
A valid estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At A. M. Appraisals, we are experts when it comes to knowing the worth of real estate features in West Columbia and Lexington County neighborhoods. The sales comparison approach to value is usually awarded the most weight when an appraisal is for a real estate purchase.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - we may use a third approach to value. In this situation, the amount of income the real estate yields is factored in with income produced by similar properties to determine the current value.
The Bottom Line
Combining information from all approaches, the appraiser is then ready to state an estimated market value for the property in question. Note: While this amount is probably the best indication of what a house is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is, an appraiser from A. M. Appraisals will help you get the most fair and balanced property value, so you can make profitable real estate decisions.
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